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Old 11-08-2008, 09:36 AM   #41
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brk earnings came out last night, 70% profit decline and lots of derivatives losses
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Old 11-08-2008, 09:43 AM   #42
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brk earnings came out last night, 70% profit decline and lots of derivatives losses
I know I know - the article I saw said -77%.

My hormone meter is pegged on greed and lust and buy buy! Blood in the streets! Whoopee!

heh heh heh - I need to get a grip. There is a reason my real retirement money is full auto/balanced index/auto deduct my retirement spending to Prime MM. Those Vanguard computers don't get very emotional.
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Old 11-08-2008, 11:46 AM   #43
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The earnings were pretty much what I expected. The derivative losses are pretty meaningless, unless the market is still down in 2015.

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brk earnings came out last night, 70% profit decline and lots of derivatives losses
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Old 11-08-2008, 02:16 PM   #44
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The earnings were pretty much what I expected. The derivative losses are pretty meaningless, unless the market is still down in 2015.
Looks like the reinsurance bonanza has ended, the housing boom is over, and those are some impressive unrealized investment losses. And, of course, the company has been spending billions of dollars to produce a horrendous cash flow.

I wonder if Buffett feels that it's worth having to keep apologizing for explaining the marking-to-market of the derivatives/options contracts in exchange for all that up-front money.
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Old 11-08-2008, 03:33 PM   #45
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I think WB is joining the "spend it down crowd" in his elder years. Get that Gecko working overtime and more "old folks" working out of those dumpsters.
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Old 11-08-2008, 05:35 PM   #46
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i didn't read the details, how was the cash flow from ops? more, less or about the same as the net income?
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Old 11-08-2008, 05:41 PM   #47
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Buy, sell, hold?
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Old 11-08-2008, 06:34 PM   #48
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Buy, sell, hold?
That would depend on what's changed in your thinking since your last buy decision.

From reading the quarterly report I think they're underpriced, and I think people are unreasonably scared off by the mark-to-market numbers of the derivatives and the stock portfolio.

I think it's reasonable to assume that consumers will continue to buy insurance, home furnishings, food, and other consumer durables... in fact, in a couple years I bet they're buying more of them than they're buying now.

I guess he's not going to talk about his CFO tryouts until the annual report.
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Old 11-09-2008, 08:01 AM   #49
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I'm holding. Nothing has changed my view that WB knows how to weather a storm better'n most.
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Old 11-10-2008, 06:35 AM   #50
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IMO, the important numbers are:
Operating earnings this quarter of $1,335 vs $1,655 per Class A equivalent share in the year ago quarter.

Most if not all of the decline could be attributed to a worse hurricane season. That's impressive given the current environment.
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Old 11-19-2008, 07:20 PM   #51
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well, BRK.B took a dive today. i hold about 5% of ER portfolio in the stock. i bought at about 3500. this was well over a year ago, so i've lost money. closing price for today is: 2783.00 of course i wish i'd sold at the high of over 5K. but...

the stock i hold is in an aftertax (taxable) account.

i am wondering if it's better to sell, and take a tax loss, and re-buy in my roth. or hold on and average down a bit by buying some more at the new price.

i think the main difference might be between the long term taxes 15% (if the stock recovers), and the amount i could deduct on income taxes (somewhat more than that).

my overall allocation some months ago (before the crash) was 20/80. the 20 being stocks (largely international because of the then-falling of the dollar) and 80 being cash and tips. i didn't expect the tips to fall but they have. so i've lost there. as well as with the cash, vis a vis inflation. of course with stocks, especially international, i've gotten killed, like everyone has.

i should say that the 20/80 allocation had partly to do with my fear over the past years of where the market was (and i've perhaps lost some money because of that fear, though i am in the long run grateful to it), and partly to do with some resistance (given my fear) of "re-allocating" under advisement of a schwab advisor. i don't fault him, but i'm glad i held out. no bad mouthing of the advisor here. he suggested re-allocating and i wanted to hold off. fair enough on both sides. i told him i didn't know what would happen with the market, and his response was: ....yeah...

i've checked the intrinsivaluator, and it suggests to me BRK might be a good buy (though i don't know what to make of earnings estimates for anyone, in this market) disregarding buffet longevity issues.

so on the surface it might suggest, take the tax loss and re-buy shares in a ROTH?

given present situation, and valuations--what to do?

i'm 55 and with a teacher's salary. so i don't have a lot of years to play with. at the same time, i have a relatively secure job. at the same time, my income and savings are not high, compared to some in the business and freelance world, and i *was* hoping to retire before 65.

i'd welcome nords' thoughts. though he's been so gracious thus far, via PM, that i have no expectations...he's already met them, and more. thanks, nords!

are there thoughts from those who know the stock and own it? what is the valuation at present? voracious buy, hold, sell?

and what is the advantage/disadvantage of trying to take a tax loss?

many/most on the forum, are IMO, more sophisticated than i on financial matters. i'm sorry if my post is more complicated than it needs to be.

best to all in this troubling time, i'm grateful for this community to check in with....
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Old 11-19-2008, 08:36 PM   #52
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well, BRK.B took a dive today.
Interesting. As near as I can tell, people are fleeing today because the company might lose $40B in 2019 due to the options they've sold. The angst is being reflected in the higher prices charged for credit-default swaps that Berkshire doesn't even control.

Bloomberg.com: Worldwide

With everyone focused on the 2019 payoff, I'm glad there's no short-term emotional hysteria here!

The issue is that Buffett is quite capable of ignoring whatever the rest of the world thinks about the investment, and indeed might not hesitate to remain silent until he announces that Berkshire is buying back shares. He probably feels he made a good deal in getting $4.85B now for the prospect of paying out in over a decade, but I wonder if he would've embarked on the deal if he'd been able to foresee the emotional reaction.

OK, I'm done wondering. Yep, he would've done it anyway. Munger would've been laughing heartily & egging him on.

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i hold about 5% of ER portfolio in the stock. i bought at about 3500. this was well over a year ago, so i've lost money. closing price for today is: 2783.00 of course i wish i'd sold at the high of over 5K. but...
i am wondering if it's better to sell, and take a tax loss, and re-buy in my roth. or hold on and average down a bit by buying some more at the new price.
so on the surface it might suggest, take the tax loss and re-buy shares in a ROTH?
Here are some questions to think about: What's your target asset allocation of BRK, and how far away from that allocation are you? Is there any rush to rebalance back to that allocation?

It's hard to find a stock that's more tax-efficient than BRK. Unless it starts paying a dividend (after Buffett's no longer running the show) the only tax you'll face will be long-term cap gains. You might be better off holding your allocations of bonds or high-dividend investments (like those TIPS) in your IRA and BRK in a taxable account.

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i've checked the intrinsivaluator, and it suggests to me BRK might be a good buy (though i don't know what to make of earnings estimates for anyone, in this market)...
It's selling near book value now. If it drops below book value, Buffett will probably feel that he has a margin of safety to start buying his own stock. If it makes you feel better to keep an eye on it you could monitor their SEC filings at Matching Company Name Results

Of course if he was going to start buying the stock, Buffett would make a public announcement before that started. I can only speculate what Becky Quick and the rest of the CNBC staff would be willing to do to score that scoop.

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Originally Posted by hopingtomakeit View Post
... disregarding buffet longevity issues.
Here, lemme help with that:
He's gonna die. He might even step down before he dies. Charlie Munger might possibly even die before Buffett, as could Kerkorian and Schloss.

Was there another issue?

Oh, succession. Well, it's possible that among Berkshire's subsidiaries there exists a CEO who's marginally capable of sitting in an office, reading obsessively all day long, and thinking hard about how to allocate Berkshire's capital. There might even be several CEOs like that. After working with Buffett for so long they might also know how he'd make decisions and influence people. Howard Buffett will remain chairman of the board and in charge of the culture. Gates will remain on the board, and he's probably picked up a few ideas about raising the value of the shares for the Gates Foundation. There are a lot of shareholder interests aligned with the company's future.

You can read more about the succession plan in Miles' "The Warren Buffett" CEO" and in Schroeder's biography "The Snowball". If I was worrying about Buffett's death, I'd be particularly attentive to the times that he's vacationing at Sun Valley.

It's also possible that the announcement of Buffett's departure/death would make the current share-price drop look like a momentary statistical blip. How would you feel about losing 45% of the share value overnight, and before the market opens or Berkshire's shares are suspended from trading? Just asking.

Of course if you really want to exploit the longevity issue then you should short the shares. Let us know how that works out.

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Originally Posted by hopingtomakeit View Post
given present situation, and valuations--what to do?
i'm 55 and with a teacher's salary. so i don't have a lot of years to play with. at the same time, i have a relatively secure job. at the same time, my income and savings are not high, compared to some in the business and freelance world, and i *was* hoping to retire before 65.
are there thoughts from those who know the stock and own it? what is the valuation at present? voracious buy, hold, sell?
and what is the advantage/disadvantage of trying to take a tax loss?
More questions to think about: What's your long-term plan? Would you hold the shares for the rest of your life, or until you retire, or lower your stock holdings gradually during retirement?

How are you feeling about this downward volatility? Do you want to feel like this in the future, or would you rather avoid this situation next time it happens?

How much are you saving on your taxes by doing the tax-loss selling?

I finally finished our tax-loss swap today and we're back at our target allocations of DVY & IJS. We booked such a loss on that first sale, and another loss on the second sale, that now we're going to finish converting the rest of our conventional IRAs to Roths.

Spouse and I expected to be buying Berkshire shares by now, even before today's flashing blue-light special. Everything in our ER portfolio has dropped pretty much in sync, though (so much for non-correlated asset classes), and Berkshire is stubbornly at the high end of our target asset allocation. (18-28%, with 23% being "normal".) According to our AA we should be cashing in CDs to buy more international shares in PID before we should worry about buying more Berkshire. But I think we're going to want to keep cash on hand for a couple years' living expenses, too, so we need to take a closer look at our cash flow and our spending forecast before we start plinking away on PID. I don't think it's going to run away from us.
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Old 11-19-2008, 10:38 PM   #53
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Interesting. As near as I can tell, people are fleeing today because the company might lose $40B in 2019 due to the options they've sold. The angst is being reflected in the higher prices charged for credit-default swaps that Berkshire doesn't even control.

Bloomberg.com: Worldwide

With everyone focused on the 2019 payoff, I'm glad there's no short-term emotional hysteria here!

The issue is that Buffett is quite capable of ignoring whatever the rest of the world thinks about the investment, and indeed might not hesitate to remain silent until he announces that Berkshire is buying back shares. He probably feels he made a good deal in getting $4.85B now for the prospect of paying out in over a decade, but I wonder if he would've embarked on the deal if he'd been able to foresee the emotional reaction.

OK, I'm done wondering. Yep, he would've done it anyway. Munger would've been laughing heartily & egging him on.


Here are some questions to think about: What's your target asset allocation of BRK, and how far away from that allocation are you? Is there any rush to rebalance back to that allocation?

It's hard to find a stock that's more tax-efficient than BRK. Unless it starts paying a dividend (after Buffett's no longer running the show) the only tax you'll face will be long-term cap gains. You might be better off holding your allocations of bonds or high-dividend investments (like those TIPS) in your IRA and BRK in a taxable account.


It's selling near book value now. If it drops below book value, Buffett will probably feel that he has a margin of safety to start buying his own stock. If it makes you feel better to keep an eye on it you could monitor their SEC filings at Matching Company Name Results

Of course if he was going to start buying the stock, Buffett would make a public announcement before that started. I can only speculate what Becky Quick and the rest of the CNBC staff would be willing to do to score that scoop.


Here, lemme help with that:
He's gonna die. He might even step down before he dies. Charlie Munger might possibly even die before Buffett, as could Kerkorian and Schloss.

Was there another issue?

Oh, succession. Well, it's possible that among Berkshire's subsidiaries there exists a CEO who's marginally capable of sitting in an office, reading obsessively all day long, and thinking hard about how to allocate Berkshire's capital. There might even be several CEOs like that. After working with Buffett for so long they might also know how he'd make decisions and influence people. Howard Buffett will remain chairman of the board and in charge of the culture. Gates will remain on the board, and he's probably picked up a few ideas about raising the value of the shares for the Gates Foundation. There are a lot of shareholder interests aligned with the company's future.

You can read more about the succession plan in Miles' "The Warren Buffett" CEO" and in Schroeder's biography "The Snowball". If I was worrying about Buffett's death, I'd be particularly attentive to the times that he's vacationing at Sun Valley.

It's also possible that the announcement of Buffett's departure/death would make the current share-price drop look like a momentary statistical blip. How would you feel about losing 45% of the share value overnight, and before the market opens or Berkshire's shares are suspended from trading? Just asking.

Of course if you really want to exploit the longevity issue then you should short the shares. Let us know how that works out.


More questions to think about: What's your long-term plan? Would you hold the shares for the rest of your life, or until you retire, or lower your stock holdings gradually during retirement?

How are you feeling about this downward volatility? Do you want to feel like this in the future, or would you rather avoid this situation next time it happens?

How much are you saving on your taxes by doing the tax-loss selling?

I finally finished our tax-loss swap today and we're back at our target allocations of DVY & IJS. We booked such a loss on that first sale, and another loss on the second sale, that now we're going to finish converting the rest of our conventional IRAs to Roths.

Spouse and I expected to be buying Berkshire shares by now, even before today's flashing blue-light special. Everything in our ER portfolio has dropped pretty much in sync, though (so much for non-correlated asset classes), and Berkshire is stubbornly at the high end of our target asset allocation. (18-28%, with 23% being "normal".) According to our AA we should be cashing in CDs to buy more international shares in PID before we should worry about buying more Berkshire. But I think we're going to want to keep cash on hand for a couple years' living expenses, too, so we need to take a closer look at our cash flow and our spending forecast before we start plinking away on PID. I don't think it's going to run away from us.
wow, nords. again your response is very thorough. and beyond my ability to analyze at this moment. i thank you. however, i did want to give some response however meager, immediately.

vis a vis: Mohnish Pabrai my sense is that he's been on top of this mess, as much as anyone has. thanks for the note on this.

i'll think over your response, as much as i'm able. if i'm able to give some kind of response to yours, i will. i don't know if i have the sophistication to do that, but i'd like to.

my gut feeling (dangerous i know) is that buffett knows as well as anyone what the valuations and future of things are. it took guts to do the ny times editorial article that he made. he's putting his behind on the line. the stakes are not so much his well being, personally, but his reputation.

at the same time, my fear, as i suspect is common to a lot of people, is that we may be heading down the drain, generally. again at the same time, if we are, it'll be hard to avoid it. for any of us.

my hope is that this period will pass, with the effect that it's a learning experience for all of us, with the bears of the last many years as a precident. in other words: "it's not different (unlike japan)."

thank you so much for your generousity and thought. and please forgive my present avoidance of specific questions. they are good ones. and you can rest assured i'll save and examine them.

i very much appreciate your response! it's more thorough than i would have known how to ask for.

as of course, as is your intent; it's useful to many more than me.

thanks again for your caring and conscientiousness...

best...
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Old 11-28-2008, 04:52 PM   #54
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I first bought BRK on 11/04 at $3890. Then, I kept buying more as it dropped, ending with my last purchase on 11/19 at $2900. On 11/20, the day BRK/B hit bottom at $2500 along with everything else, I was too scared to buy more though I still had cash.

Earlier, I had almost bought an A share (worth 30 B-shares) or perhaps two at $118,000 each. I never made a purchase or a sales of that size unless it was for a diversified mutual fund, and I thought of BRK more as a mutual fund than a single stock.

But then, I decided to buy smaller B-shares to have small quanta for ease of converting to food later as needed. It turned out that was the right move as I was able to buy cheaper as the entire market, not just BRK, started to drop like a rock shortly after.

As of today, I am at break even for the entire BRK position (close at $3500 on 11/28). I will sell my mutual fund holdings to convert to BRK as the former's performance has not been that good compared to the latter. In the short term, meaning the last month, they all seem to track, hence I am in no hurry.

Down to 56% cash now, as I have been scooping up other stocks in the mud the last few days. Even after 10 to 30% rise from the bottom on 11/20, they are still sooo cheap at mid single-digit P/Es. Some even have single-digit forward P/Es! Perhaps the market knows something that analysts do not know, or the analysts do not even know how to update their earnings projections. But if I do not buy low, then when do I buy?
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convert A to B...
Old 11-30-2008, 06:30 PM   #55
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convert A to B...

NW, et al...

Bought a A share @ 108K back in 6/07.

I'm not pressed to sell it, but I have read
that one A can be converted to 30 B's at
any time. Anyone have any experience
converting A's to a B? What does it involve?

-LB
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Old 12-01-2008, 02:14 AM   #56
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Yes, I understand that A shares can be converted to B's, but not the other way around.

I would think that this would be considered a nontaxable event, same as with merger and acquisition stock swaps, although the price of B shares sometimes represents a discount over A shares (meaning you "lose" money by the conversion).

Though the conversion does not apply to me, my curiosity was piqued by your question. So, I did a bit of research on the Web, but did not find the info.

I guess a call to your brokerage house may be the first step. They have to be involved in this transaction anyhow, in order to credit your account with the new B shares. I wonder how much your brokerage may charge for this service.
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Old 12-01-2008, 10:00 AM   #57
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Common Stock

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Shareholders of record wishing to convert Class A Common Stock into Class B Common Stock should contact EquiServe to obtain a "form of conversion notice" and instructions for converting their shares. Shareholders may call EquiServe between 9:00 a.m. and 6:00 p.m. Eastern Time to request a "form of conversion notice."
Along with the underlying stock certificate, shareholders should provide EquiServe with specific written instructions regarding the number of shares to be converted and the manner in which the Class B shares are to be registered. We recommend that you use certified or registered mail when delivering the stock certificates and written instructions.
If Class A shares are held in "street name," shareholders wishing to convert all or a portion of their holding should contact their broker or bank nominee. It will be necessary for the nominee to make the request for conversion.
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Old 12-13-2008, 09:20 PM   #58
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This is one of the best summaries & analyses I've read about Berkshire's put options:

What Caused Berkshire's Freefall - And How Investors Can Benefit - Seeking Alpha

Quote:
Berkshire’s maximum exposure is $37 billion, which Buffett recently clarified would only happen if the four indices all fall to zero, but this isn’t going to happen so let’s look at more-likely scenarios. We don’t know the details of how the puts are structured, but let’s assume the payouts are on a straight-line basis, such that if the indices are down 50% 13.5 years from now – another 17% from today’s levels – then Berkshire will have to pay $18.5 billion (half of the $37 billion maximum). That would be a painful loss, to be sure, but one that Berkshire could easily afford – the company’s earning power today exceeds $10 billion per year and, as of the end of October, its net worth exceeded $111 billion, both figures that will be much higher more than a decade from now.
It’s also important to understand that the loss in this doomsday scenario would not be $18.5 billion minus $4.85 billion because Buffett can invest the $4.85 billion for the entire period. If he earns a mere 7% return for 13.5 years, that $4.85 billion becomes $12.1 billion. In this case, Berkshire’s break-even point on this investment would be a 33% decline in the indices from the point at which the puts were written, meaning the indices would only have to increase less than 1% annually over the next 13.5 years to reach this level from today’s level of down 40%.
Buffett has said that he'll include more details of the puts in Berkshire's annual letter, which will be posted on the website next February.
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Old 12-14-2008, 08:21 AM   #59
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The index puts Buffett sold have a lot of people freaked out beyond what is rational, I think. Because there is no counterparty risk (he's already been paid) and because that premium can be invested for many years, the market would have to do really badly for a long period of time in order for there to be any exposure to Berkshire beyond break-even return of invested premiums.

(Disclosure: loaded up on BRKB in the 2500s in late November.)
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Old 12-17-2008, 03:39 PM   #60
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The index puts Buffett sold have a lot of people freaked out beyond what is rational, I think. Because there is no counterparty risk (he's already been paid) and because that premium can be invested for many years, the market would have to do really badly for a long period of time in order for there to be any exposure to Berkshire beyond break-even return of invested premiums.

(Disclosure: loaded up on BRKB in the 2500s in late November.)
I so wanted to have cash when Berkshire was collapsing. Ziggy, if you don't double your money on Berkshire in 5 years I'll be shocked.
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